Entrepreneurship and Venture Creation, Marketing & Pricing - Essay Example

Entrepreneurship and Venture Creation Contents Part A 4 Application of theories 4 Scope for further entrepreneurial activities 8 Recommendations 9 Part B 11 1.The Business 11 Description of the Business 11 Brief Summary of the Market Survey 12 Competition and SWOT 14 Operation, Staff and Structure 14 Collaboration and Partnerships 15 Marketing & Pricing 15 2.Financial Data 16 Income 16 Direct Costs 17 Running Costs 18 Capital Equipment 18 Risk Analysis 19 Action Plan 20 References 21 Part A Application of theories Entrepreneurial activities are centred towards designing an innovative business idea which cannot be imitated by other players. Entrepreneurship is all about setting up a new business in the market place. A business model is basically developed by an entrepreneur with the support of required financial and human resources. It is solely responsibility of an entrepreneur to generate funds for this new business set up. In overall context, business growth or failure is totally dependent on activities undertaken by an entrepreneur. Entrepreneurship ecosystem is a framework within which entrepreneurs operate (Acs and Armington, 2004). In the current scenario, concept of entrepreneurship has expanded, in terms of including social and political activity. Entrepreneurs are often regarded as leaders who are even denoted as risk takers. These leaders undertake risks so as to accomplish set goals and explore market opportunities. Entrepreneurs are even inclined towards planning, employing and organizing resources. There are two forms of entrepreneurial skills – to improve upon existing product line or design a completely new product. Changing mind set is also observed within entrepreneurs and this leads to formation of social entrepreneur, knowledge entrepreneur, political entrepreneur, etc. Successful entrepreneurs basically possess two important attributes such as team building skills and management skills (Audretsch and Lehman, 2005). A new business idea is also generated by Marvin Hill as per the case study. Marvin Hill in present scenario is a multi-millionaire. He has been able to deliver creative ideas and develop solutions for market based problems. Marvin Hill had worked for Ford Motor Company since six years and then he decided to shift towards building his new business. He was determined to design computer aided software for providing assistance to engineering projects. This CAD software was a relief for many large scale organizations that undertake engineering projects. MarvCAD Inc., had been able to acquire desirable profit margins within few years of its incorporation. The company was more inclined towards addressing critical issues related to engineering products. Software quality designed by Marvin Hill was much higher and it was user friendly. Users could easily work with CAD in terms of facilitating search capabilities, visual, proprietary and website content, audio, etc. The different pieces of this software were highly customized and modularized. It enabled users to attach add-ins as and when required. Marvin Hill did not recruit professional sales executives but he himself proved to be the best sales personnel for the organization (Bathelt, 2001). He believed that his company was able to acquire desirable sales margins simply because of software quality and innovative software features considered to be valuable by customers. There was no technical support department present in the company and sales team accounted for 6 talented sales executives. Marvin Hill not only possessed capability to frame innovative ideas but even had leadership skills to communicate his ideas to target group. He even signed a deal with famous company Pentagon in order to provide training programs about usage of CAD software. According to Casson, imaginative skills are an essential element present within entrepreneurs. Apart from being imaginative, entrepreneurs also possess command over required resources. This theoretical framework even constitutes milder innovation level amongst entrepreneurs. Marvin Hill did not possess milder innovation level but he was highly imaginative in terms of structuring new CAD software (Hisrich and Peters, 1992). Resource allocation skills were already present within Marvin Hill. Innovation as per this theory is driven towards specific areas and entrepreneurs are undertakers of uninsurable risks. Casson even stated that entrepreneurs are mostly good disseminator of essential information and follows individualistic approach. This holds significance for Marvin Hill since he had undertaken a huge risk of designing software, where high amount of investment was involved. On the other hand, individualistic approach was also present within Marvin Hill since he did not work as a team but was more focused towards accomplishing individual interests. MarvCAD had no technical support department or a team of professional sales executives. This was simply because Marvin Hill did not trust external entities. He possessed all entrepreneurial skills as per this theory but was not dependent on others. Shackle also proposed a theory on entrepreneurship. According to this theoretical framework, entrepreneurs are imaginative, have a vision, exhibits high trust level for their team members, creative by nature, have personal wealth to run business operations, explores market based opportunities, proper disseminator of information, profit-oriented and is confident in context of superior quality. It can be stated that MarvCAD was invented due to high imaginative power in Marvin Hill. He was profit oriented along with exercising social behaviour in the form of providing training to professionals using CAD software. Opportunities were explored by Marvin Hill in context of delivering software which can mitigate risks associated with engineering projects. His confidence towards superior quality work enabled the firm to gain desirable profit margins (Georgelli, Joyce and Woods, 2000). There was another entrepreneurial theory proposed by Venkataraman, which stated that entrepreneurs are risk takers but are eventually calculative, innovative, creative, possess achievement need, group oriented along with individualistic, utilizes new technology, have high trust on team members and are success driven. This theory is often not able to define key entrepreneurial skills because it merges two characteristics present within individuals. Individualistic approach was exhibited by Marvin Hill but he was not inclined towards group oriented behaviour. There is less possibility for people to possess dual characteristics. On basis of this theory it cannot be denoted that Marvin Hill was truly an entrepreneur. However certain skills as highlighted by Venkataraman are significant in context of Marvin Hill. He was an innovator as he discovered brand new software (Van Stel, Carree and Thurik, 2005). He had high need for achievement so decided on implementing marketing activities. Success driven qualities was observed in Marvin Hill since he continued to structure strategies for further business expansion. On the other hand, technology based business ideas proves entrepreneurial skills of Marvin Hill. As per Schumpeter, entrepreneurs are mainly innovators. They even explore market opportunities and believe in incorporating technology based changes. Entrepreneurs according to Schumpeter are highly alert during executing business operations. The author clearly outlined that entrepreneurs possess high achievement need, encourage team work and are good information disseminators (Drucker, 1955). Marvin Hill was an entrepreneur since he could analyze the demand towards computer aided design software and incorporated changes on basis of technology. However factors like team work is not relevant for this entrepreneur which makes certain skills not appropriate for Marvin Hill. Kirzner highlights some important characteristics present in any entrepreneur such as acquiring profitable opportunities, milder innovators, informative and imaginative, profit oriented, individualistic and technology savvy. Marvin Hill encompassed such qualities in terms of delivering imaginative ideas. He was not only restricted to designing innovative software but adopted strategies to implement marketing activities. Profit oriented motive of this entrepreneur can be well determined in context of expanding its client base and offering superior quality services. He was not aligned with group work. This in turn supported him to gain the title of multi-millionaire which was self- made. A theoretical framework on entrepreneurship was also proposed by Knight. In his theories, entrepreneurs are major risk takers, who undertake uninsurable risks (Bygrave and Minniti, 2000). The author defines entrepreneurs as creative, confident, predictable, profit oriented, possesses information, work collaboratively in social groups and does not trust team members in terms of framing important decisions. Marvin Hill even did not trust six sales executives present in his organization. All decisions were structured by Marvin Hill himself. His creativity and confidence level was witnessed in designing high technology based software and allocating lump sum investment from external financial sources. These theories have been able to demonstrate Marvin Hill as an entrepreneur but there are certain skills or attitudes which are not present within this entrepreneur. Scope for further entrepreneurial activities Entrepreneurial activities are often subjected to change with fluctuating needs and wants in the market place. It is clearly evident that no business or entrepreneurs encompass all possible entrepreneurial skills or attributes. There are loopholes in every business activities and this account for business growth or failure. To be more precise, entrepreneurs usually have certain expertise and that is reflected upon their respective business operations. Theories proposed by different authors have different characteristics of an entrepreneur. These characteristics might not be applicable in real world scenario. For instance, there were many factors outlined by theorists which did not hold significance for Marvin Hill. Group work or collaborative work is one such factor which was not present within entrepreneurial activities of Marvin Hill. He simply believed that he is the best talented sales personnel and do not require support of other sales executives. However in long run, presence of this attribute would be highly beneficial for Marvin Hill and his business. Team work can be stated as the first step towards achieving high standards in business operations. Marvin Hill can even expand on its business activities with the support of a highly productive team. Entrepreneurial activities can be further improved if a team of qualified sales executives is maintained by MarvCAD. Business operations can be more entrepreneurial if software design is made further customized with the support of software developers. These developers can provide innovative ideas which could sustain business operations in future years. Apart from this component, there is further scope to enhance participative approach in business activities. Participative approach upgrades entrepreneurial activities since it develops high trust level in any business organization. Trust deficit is absent in Marvin Hill’s entrepreneurial approach. On the other hand, risk analysis in correlation with exploring business opportunities can also be included in this entrepreneurial firm. Risk factors are often not properly analyzed by many entrepreneurs. It is assumed that entrepreneurs are risk takers but certain risks might affect level of acquiring market opportunities. Opportunities and risks are considered to be individual terms in this business organization (Laforet and Tann, 2006). These two factors have to be correlated in order to deliver possible outcomes. Trading habits of MarvCAD can be improved if base of external stakeholders is increased. These stakeholders shall provide the scope to extend client base across the globe. Trust and group work are two important factors in order to create and retain client base. Success driven attitude is diminishing in this firm and it can be addressed only through remaining informative and exploring new opportunities. Opportunity seeking behaviour shall alter trading habits of this company. Entrepreneurship is all about continuous growth and development. An entrepreneur needs to continuously develop new ideas in order to retain their respective market position. To great extent, implementation of new ideas is only possible when a productive team is build by an entrepreneur. Team support in the form of creative opinions is required so as to stay ahead of market competition. Recommendations Marvin Hill is currently inclined towards implementing marketing strategies. These strategies shall enable the organization to explore new market trends and spread awareness amongst large customer base. In overall context, the main aim of Marvin Hill is to set high performance standards in the industry. MarvCAD was formed to acquire alpha customers. This was simply because it increased upon financial base of a company. Marvin Hill is recommended to recruit individuals for technical support system. These individuals will be responsible for designing new software’s that can provide assistance for engineering projects. Software designing is a critical aspect for such businesses. CAD software was an innovative idea bought forward by Marvin Hill but it could be enhanced only through the support of talented software designers. Technical support team shall also include group work within entrepreneurial activities. These activities are centred towards developing superior quality software and acquiring alpha customers from the market place. Entrepreneurs usually possess team work skill but it was not present within Marvin Hill. He can be demonstrated as a profit oriented individual who believed in individualistic approach rather than collectivism approach. The absence of team work restricted the firm from performing well in competitive market segment. Marvin Hill considered himself to be talented sales professional and did not trust any subordinates. This was clearly reflected in his limitations of keeping six sales professional in the team. However this form of individualistic approach is not valid for a volatile market where there is fluctuating demand. It is always stated that ideas coming from group of people is more productive than ideas generated in single mind. Trading practices can also be improved by providing training to professionals who would be utilizing MarvCAD. The company is recommended to work in collaboration with any other organization that shall provide required training to individuals. These training initiatives will be a kind of value addition offered by Marvin Hill. CAD software encompasses wide range of benefits but it could not be understood well by non-technical executives due to its complexities. Training programs is just an initiative to remove complexities and initiate a user-friendly platform. User-friendly approach enables users to effectively use the software without any intermediary support. Marvin Hill is also recommended to formulate marketing strategies. This objective can be accomplished through maintaining a small marketing team. They would be responsible for analyzing market trends and designing strategies accordingly. It would be a scope for the firm to go ahead of competition. Marketing strategies is not only responsible for enhancing brand image but it plays a significant role in terms of spreading awareness amongst target group. These strategies shall even involve hiring distributors who can provide software demonstration to reputable engineering firms. Promotional tools are ineffective if experienced sales personnel are not present in a team. Direct selling approach helps an entrepreneur to communicate directly with customers and understand their demand appropriately. It is highly recommended that Marvin Hill should encourage direct selling mechanism in which sales executives offer services after evaluating problem areas of clients. Part B 1. The Business Description of the Business United Kingdom offers great opportunity to new businesses in terms of exploring innovative ideas and achieving desirable profit margins. New business idea selected for this section is a restaurant chain. This restaurant would be supplying Asian cuisine in UK market. The name of the restaurant shall be ‘Mom’s Kitchen’. There are many Asian people located in United Kingdom who prefers to consume Asian delicacies. Mom’s Kitchen would be located in Bristol. The restaurant shall offer different types of Asian cuisines to target group. East Asian cuisine will encompass wide array of staple foods like rice noodles, soybeans, different sea food, mung beans, Chinese cabbage or bok choy, tea and Mongolia mutton. South Asian cuisine will comprise of vegetarian dishes – vegetarian thali’s, South Indian foods such as dosa’s, idli’s, sambar, etc., momo’s and kebab’s. Mom’s Kitchen would even provide traditional Indian ‘chaats’. Apart from these, Thai cuisine like roasted duck in red curry and Korean barbeque will also form a part of this menu. Mom’s Kitchen shall also offer wide array of juices, mocktails and smoothies. Brief Summary of the Market Survey The target market for the restaurant business is Bristol, a place in South West England. There are limited restaurant chains located in Bristol and none of them supplies such wide array of Asian cuisine unlike Mom’s Kitchen. The total population of this region is 437,500 and amongst them 65% of population is Asian. This in turn increases demand towards Asian cuisine. On the other hand, percentage growth in casual dining and fine dining has increased in current scenario. Target group which is individuals belonging to age group of 21 years to 45 years are more inclined towards eating outside. Figure1 demonstrates the percentage increase in consuming food outside. Figure 1: Market Growth (Source: Moss, 2013) The percentage of casual dining has increased by 18% over past years. UK market is mostly quality driven and hence restaurants need to supply quality food to customers. There are some famous restaurant chains in Bristol like GlassBoat, Brassmills, Farrells Irish Italian Restaurant, Talbot Inn and Pizza Express. All these players offer food products within moderate to high price range. In such circumstance, Mom’s Kitchen will provide quality Asian cuisine at competitive prices. Market penetration strategy would be adopted by the firm in order to acquire maximum percentage of market share. Competition and SWOT The firm desires to establish monopoly position in the market place. This would be accomplished through competitive prices, food quality, superior service and timely delivery. Home delivery option can be stated as one factor in firm’s unique selling proposition. Mom’s Kitchen shall focus only on Asian cuisine and this might help to attract large base of Asian customers. Weakness of this firm would be to operate in a completely new market segment. Bristol encompasses famous restaurants which offer innovative delicacies to target group. Market opportunity for the firm is to grab attention of Asian customers by introducing new Asian cuisine. Mom’s Kitchen can even expand on its menu in future years depending on market demand. Arabian food can also be launched by the restaurant in coming years. The major threat for the firm is growing competition. Other players can easily imitate such food dishes and offer it in their respective restaurants. On the contrary, new entrants can also explore UK market on basis of Asian cuisine. Operation, Staff and Structure A simple organizational structure will be followed at Mom’s Kitchen. The firm will initially centralize its operations in Bristol. Management shall divide talented executives into three segments – kitchen department, service providers at outlet and customer service support. Kitchen department would comprise of talented chefs possessing required expertise or skill in preparing Asian food. There will be a head chef to govern overall activities taking place in the kitchen. A service team comprising of 20 members would present in the restaurant outlet. They shall be trained in order to deliver superior quality service to customers. Responsibilities of customer support system will be to take orders and deliver orders on specified on time frame. Operations of the company would be divided mainly into two sections such as service department and kitchen department. Collaboration and Partnerships Collaborative business operations are essential for any new business set up. There are wide array of internal and external stakeholders of Mom’s Kitchen. External stakeholders of this organization are suppliers and customers. Strong partnerships would be maintained by the business with suppliers. These suppliers shall be competitive advantage for the firm. Suppliers will work in collaboration with Mom’s Kitchen. Quality standards would be structured by the organization and it will be distributed across suppliers. Suppliers should be solely responsible for providing raw materials to the firm on required time. On the other hand, customers also play a vital role in executing business operations. They would provide feedback to the firm on basis of a rating scale. Customer service support will be in charge of collecting such feedback and analyzing strengths or weakness of such delicacies. Trade license will be firstly acquired by the firm in order to set up their outlet in Bristol. These business partners have been chosen to facilitate success and growth of business operations. Marketing & Pricing Target market for this restaurant chain is individuals belonging to age group between 21 years to 45 years. Younger generation shall prefer to consume Asian food more in comparison to older generation. Asians who are residents of United Kingdom are major target segment for the company. In United Kingdom it is often not possible to get Asian food but Mom’s Kitchen shall provide opportunity to customers to consume Asian food. Product features will encompass wide array of Asian cuisine – vegetarian and non-vegetarian. Penetration pricing mechanism will be implemented in the first place so as to remain competitive in the market place. Distribution channel will be store outlet located in Bristol. Promotion shall be carried out in the form of designing advertisement campaigns and broadcasting it through radio, newspapers, social media and food magazines. Apart from these promotional tools, billboards and leaflet distribution will serve as another medium to spread awareness amongst target audience. Quality and price would be the core elements of company’s philosophy. 2. Financial Data Income Demand forecast Total population in region 437,500         Asian in the region 284375         Growth rate of the market 18%           Year 1 Year 2 Year 3 Year 4 Year 5 Target Customers 1422 1678 1980 2336 2757 Average consumption per customer 9 9 9 9 9 Frequency of visit in a year 6 6 6 6 6 Profit and loss accounts (₤)   Year1 Year2 Year3 Year4 Year5 Revenue 76781.3 90601.9 106910 126154 148862 Cost of goods sold 30712.5 36240.8 42764.1 50462 59545 Gross Profit 46068.8 54361.1 64146.1 75692 89317 Operating Expenses 31811.6 35312.8 37886 48983 49362 EBITD 14257.2 19048.3 26260 26709 39955 Depreciation 2740 2740 2740 2740 2740 EBIT 11517.2 16308.3 23520 23969 37215 Tax 2303.44 3261.67 4704.05 4793.854 7443.089 Net profit 9213.75 13046.7 18816.2 19175.42 29772.36 Profit margin 12% 14% 18% 15% 20% Breakeven Analysis Fixed cost 13,700   Profit in year 1 9213.75 1 Profit in year 2 13046.7 0.34 Breakeven time (year)   1.3 Breakeven sales (₤)   103183 In finding the forecasted income for the hotel for the coming 5 years first of all the total target population of the region is found out. The total target population in the region is found to be comprised of the Asian population. The Asian population in the region is 65% of the total population in the Bristol. Amongst the total target population in the region it is estimated that the target population that will be reached in the 1st year is 10%. It is also estimated that the market will grow at the rate of 18% per year over the 5 year period. It is also estimated the target population will be visiting the restaurant twice a month. So the frequency of visit per year is estimated to be 6. After finding the no. of visits and the total revenue per year the cost of goods sold is subtracted to find gross profit. From the gross profit, operating expenses are subtracted to find the operating profit. From the operating profit then the depreciation is subtracted to find the profit before taxes. The percent of profit before taxes in the 5 years comes out to be at 12%, 14%, 18%, 15% and 20%. Direct Costs Direct cost (₤)   Year 1 Year 2 Year 3 Year 4 Year 5 Cost of sales / direct cost 30712.5 36240.8 42764.1 50461.6 59544.7 The direct cots that incurred in the running of the restaurant are included in the cost of goods sold (Collier, 2009). The direct costs are the cost of the raw materials and the cost that is involved in the manufacturing of the final good. Direct costs are the costs that can directly be attributed to the production of certain goods. For example the cost of manufacturing a hamburger can directly be attributed to the cost of the materials that will be used in the production of the hamburger. Running Costs Running costs are those costs that will be required and used in the daily working of the restaurant (Alvarez, and Fridson, 2002). The running costs that are considered in running a restaurant are Wage and salary, Advertising and accounting, Distribution costs, insurance and Repair and Maintenance. It is estimated that in running mom’s kitchen about ₤9543.5 will be expended in wages and salary, ₤6362.3 in advertising and accounting, ₤6362.3 in distribution costs, ₤3181.2 in Insurance, ₤3181.2 in repair and maintenance. The total operating cost for the 1st year comes out to be ₤31811.6. The operating cost for the subsequent years goes on increasing with the increase in the scale of operations. Operating expenses / Running cost (₤)   Year 1 Year 2 Year 3 Year 4 Year 5 Wages & Salary 9543.5 10593.8 11365.8 14694.9 14808.5 Advertising and accounting 6362.3 7062.6 7577.2 9796.6 9872.3 Distribution costs 6362.3 7062.6 7577.2 9796.6 9872.3 Insurance 3181.2 3531.3 3788.6 4898.3 4936.2 Repair and maintenance 6362.3 7062.6 7577.2 9796.6 9872.3 Total 31811.6 35312.8 37885.9 48983.2 49361.6 Capital Equipment Capital expenditure forms part of the initial outlay by business that is used to buy the office properties, other equipments that will be used by the company for the longer term. The capital expenditure actually creates assets for the business (Mcfarlin, and Sweeney, 2008). The capital equipments of a business are subject to depreciation. The main capital equipments that are considered for the hotel business are the property of the restaurant. The property takes up the lion’s share of the initial investment outlay (Boddy, 2005). Other sources where initial capital investment is used up are in buying furniture for the restaurant where people will sit down to eat, in buying kitchen utensils and machineries such as refrigerator, mixture and grinders. The capital goods are subject to wear and tear. Therefore, the business has to set up money that will be used to replace these once their initial life is finished. The source of the fund to replace the capital assets comes from the depreciation account. The businesses depreciate each equipment based on the concept of the useful life of the capital goods these goods are depreciated year on year and this fund is kept separate and used to buy the equipments once their useful life is finished. Startup cost and depreciation (₤)   Startup Cost Depreciation Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Cost of property 10,000 2000 2000 2000 2000 2000 Cost of refrigerator 1000 200 200 200 200 200 Cost of kitchen utensils 200 40 40 40 40 40 Cost of other machines 500 100 100 100 100 100 Cost of chairs and tables 2000 400 400 400 400 400 Total 13,700 2740 2740 2740 2740 2740 Risk Analysis Risk Probability Severity Contingency Risk that the new restaurant may not find acceptability amongst the customers. 50% High The risk factors may be negotiated on the basis of greater advertisement. The restaurant may not be competitive enough with the current restaurants in the area 40% High In order to increase the competitiveness the restaurant may go on to reduce the price of the dishes or increase advertisement. Action Plan Time period Particulars Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Develop menu items Website development Advertisement in social medium Bill boards Ask for customer feedback regarding what cuisines they want research on healthy food The action process in setting up the restaurant would revolve around in developing menu items, website development, and advertisement in the social medium, asking for customer feedback regarding what cuisines they want, researching on healthy food and incorporating the same in menu items. References Acs, Z.J. and Armington, C., 2004. Employment growth and entrepreneurial activities in cities. Regional Studies, 38(8), pp.911-927. Alvarez, F. and Fridson, S. M., 2002. 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